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World Finance & Banking Symposium, 2022 E-Proceedings
EQUITY MARKETS PRICING AND CENTRAL BANK INTERVENTIONS:
A PANEL DATA APPROACH
Carlos Rincon
HSE University, Russia
krinkonernandes@hse.ru
Abstract
This paper analyses the effects of central bank interventions on the pricing of stock market
indices. The study confirms that the large-scale purchases of government debt securities in
response to the Great Recession and Covid-19 crises by the Fed, influence the pricing of equity
markets via its effect on the pricing of treasury bonds. The instrumental variables three-stage
model approach is used to determine the impact of the Fed?s balance sheet size on the equity
market indices as a measure of its price levels. Under this approach, this study examines the
effects of changes in the size of the Fed?s balance sheet in three intervention scenarios: during the
2008-2013, the 2020-2021 periods, and throughout. Moreover, the study compares the results
from two statistical strategies: time series and panel data. The results of this study lead to conclude
that the 3SLS for time series is recommended over the panel data strategy when analyzing indices
that share stocks in common. Use of the 3SLS panel data strategy is left for analyzing the effects
of instruments on international indices that do not share stocks in common.